MOSCOW, (Reuters) – Magnitogorsk Iron & Steel Works , Russia’s third-largest steelmaker, cut its output forecast for steel products on expectations of lower sales to post-quake Japan and Middle Eastern countries.
The company lowered its forecast for steel product output growth this year to 10-15 percent from 20 percent, as global sales suffer.
“We all know about the (political) problems in the Muslim world … and the situation in Japan is not getting better,” Chief Financial Officer Oleg Fedonin said during a conference call.
Steelmakers in Russia, the world’s fourth-largest producer, have recovered from the financial crisis to post strong profits thanks to their position as leading low-cost producers.
The company beat market expectations on Friday as first-quarter net profit rose 42.5 percent year on year, thanks to higher output and prices.
Net profit for the period was $134 million, compared with $113 million forecast in a Reuters poll. Rivals Severstal and Novolipetsk Steel have posted sharply higher year-on-year first-quarter results.
MMK said first-quarter earnings before interest, taxation, depreciation and amortisation (EBITDA) reached $403 million, up from $374 million a year ago but below the $420 million forecast.
Revenue in the period reached $2.22 billion, up from $1.65 billion last year but less than the $2.3 billion forecast.
Uralsib analyst Dmitry Smolin said political turmoil in the Middle East affects MMK, which sells to Egypt and other countries now engulfed by popular uprisings. It reported that 64 percent of its exports went to the region in the first quarter.
“There is some softening on the export market – Middle East tensions are having an effect,” he said.
MMK bought out its partner in a Turkish joint venture this year. Once its plants there reach full capacity, they are expected to produce 2.3 million tonnes of flat rolled steel products annually.
However, the lowered production forecast is not expected to significantly affect MMK’s results thanks to firm prices.
“We will try to maintain prices, but volume will suffer,” Fedonin said.
At 1402 GMT, MMK’s shares were off 0.4 percent at 25.10 roubles, underperforming the MICEX which was up 1.7 percent.
The effect of Middle East turmoil will be limited, since the majority of MMK’s sales are on the domestic market, which in the first quarter accounted for 76 percent of total revenue.